Tuesday, 16 January 2018

The SNP's Conversion

Yesterday the SNP published "Scotland's Place in Europe". It's a good piece of work and a worthwhile read for anybody who wants to gain an understanding of the (UK wide) issues surrounding Brexit and the various options we face.

But if we allow ourselves to step back from the Brexit question for a moment, it's interesting to read the report while considering the SNP's continued commitment to drag Scotland out of the UK Single Market. A couple of observations;

Firstly, the report is admirably thorough but with one major exception: it simply ignores Scotland's exports to the rest of the UK (rUK) when scaling the economic issues. Given we're looking at the Scottish Economy here, we should surely scale figures in the context of total Scottish exports, not just "international exports" (a term they use to allow them to ignore exports to rUK completely). Let's take a quote from the report and correct it;

"24. The EU is Scotland’s second most important international export market. In 2015, Scottish companies’ exports to countries within the EU were estimated at £12.3 billion, which is 43% 16% of Scotland’s total international exports and supports, directly and indirectly, hundreds of thousands of jobs across Scotland."

[Notice by the way that these figures come from the Scottish Government's Export Statistics Scotland publication, a report that nationalists decry as wholly unreliable when they don't want to face the reality of what the figures show]

Let's take another example - note they no longer even bother with the "international exports" qualifier here;

"38. To replace a 5% reduction in Scotland’s EU exports with increased trade from the BRICS economies would require a 30% increase in exports to those economies. Even if the UK signed agreements with the 10 biggest non-EEA single country trading partners (including USA, China, and Canada), a process which would take many years, this would only cover 37%14% of Scotland’s current exports compared to 43%16% of current exports that go to the EU"

Of course we could also rewrite that quote thinking from the perspective of Scotland leaving a post-Brexit the UK;

"38. To replace a 5% reduction in Scotland’s EUUK exports with increased trade from the BRICS economies the EU would require a 30% 20% increase in exports to those economies. This within the context that our current levels of EU trade have been achieved after almost 45 years of unfettered market access."

Let's do one more - but first we need to highlight an apparent error in the base figures;

"90. Similarly, in relation to the agriculture and forestry
sectors, Brexit represents a hugely significant
challenge. Food and drink alone accounts for
Scotland’s biggest non-energy export, with over
two-thirds of exports worth £1.2 billion in the first
three quarters of 2017 going to EU countries."

There is no source given for the "two-thirds of exports" assertion (the next sentence references this report which doesn't seem to give that figure, unless I've missed it?). The most recent ESS data (for 2015) gives a full year figure for Food & Drink exports to EU of £1.8 billion (so would seem consistent with the above, given that's a "first three quarters" number), but that's 38% (over one-third, not over two-thirds) of "International Exports" of £4.8bn and just 20% of all exports (when rUK exports is included) of £8.9bn. So the corrected version would read;

"90. Similarly, in relation to the agriculture and forestry sectors, Brexit represents a hugely significant challenge. Food and drink alone accounts for Scotland’s biggest non-energy export, with over two-thirdsless than one third of exports worth £1.2 billion in the first three quarters of 2017 going to EU countries."

OK, so they ignore exports to rUK when scaling the export figures (and they may have made a "two-thirds" instead of "one-third" typo) ... but assuming Scotland remains in the UK with unfettered market access this approach could be defended, albeit I would suggest it's presented in an intentionally misleading way.

The second observation is that the SNP suddenly seem very happy to believe economic forecasts from HM Treasury, the National Institute for Economic & Social Research (NIESR) and Fraser of Allander. They are variously cited throughout the document and their forecasts summarised in this handy table at the back

[We can forgive the NIESR/NEISR typo]

Anybody familiar with the indyref debate must surely be raising their eyebrows at this point. Notice how the Scot Gov forecasts are at the most pessimistic end of the spectrum - "Project Fear" anyone?

Now let's just remind ourselves of the attitude shown to HM Treasury forecasts when they related to the outlook for an independent Scotland;

Here's Alex Salmond referring to The Treasury's figures - which were using what turned out to be extremely optimistic Office for Budget Responsibility (OBR) forecasts:

"But the First Minister dismissed the OBR’s figures as “stuff and nonsense”. A spokesman for the First Minister said: “Danny Alexander must ­apologise for the Treasury’s dodgy dossier on the finances of an ­independent Scotland"

When HM Treasury analysis suggested the one-off costs of setting up the institutions for an independent Scotland would be £1.5 - 2.7bn, Salmond called it a "highly misleading briefing". He suggested the true figure would be nearer £0.2bn, a figure which was obviously fantastical at the time. Later that same year the Centre for Economics and Business Research (CEBR) published a report which concluded: "The set up costs for an independent Scotland would run to nearly £2.5bn"

It's worth looking at the forecasts the Scottish Government produced prior to the indyref compared to the numbers from HM Treasury (and others variously dismissed by the SNP at the time) ... and note what we now know to be the actual outcome

As for NIESR, the SNP weren't quoting them during the Indyref when they concluded that;

"on the basis of any reasonable division of existing assets and liabilities, Scotland would begin its independence with a substantial debt burden and less scope for risk-sharing. We estimate that Scotland would need to run primary surpluses of 3.1% annually order to achieve a Maastricht defined debt to GDP ratio of 60% after 10 years of independence. This would be more restrictive than the fiscal tightening over the last four years."

Finally for now, within the Scotland's Place in Europe report the Fraser of Allander Institute (FAI) is quoted in relation to the jobs threat from Brexit;

"The FAI have also presented the impact on jobs, suggesting Brexit could cost up to 80,000 jobs."

That's the same Fraser of Allander Institute who have suggested that more than four times as many jobs are supported by rUK exports as by rEU exports.

It will be interesting to see how the SNP respond to HM Treasury and other respected institutions' analyses and forecasts if their fabled indyref2 ever occurs.

"Membership of the European Single Market must be the foundation of our future relationship with the EU if continued EU membership is not presently possible. That can best be secured through UK membership of the European Economic Area Agreement alongside Norway, Iceland and Liechtenstein."

But of course an early report from the Scottish Government, endorsed by Sturgeon, savaged that option as incompatible with democracy. It paints the picture of Holyrood reduced to rubber-stamping new laws handed to it by Brussels with no consultation. Quoting the earlier report:

"The Scottish Government therefore does not consider that EEA membership is a desirable option from a democratic perspective – Scotland‟s citizens would lose all ability to influence the laws and regulations to which they would be subject."

It goes on to say that EEA members are:

"excluded from the range of important and favourable bilateral trade agreements the EU has signed over the years, and the potential future agreements that it is currently negotiating with some of the world‟s major economies – including Japan and the USA."

And it also makes this point:

"Although EEA countries technically enjoy free access to the EU internal market, this privilege is qualified insofar as these countries are obliged to establish complex procedures to ensure that goods and services originating in third countries do not benefit from the EEA provisions. As a result Norway is subject to the EU‟s Rules of Origin requirements. These rules of origin relate to the „Economic Nationality‟ of goods and services and have to be observed by Norway comply with its EEA obligations. This can create significant and costly complications regarding products that draw on wide international supply chains as part of their development, as only a certain proportion of input components can be imported (with each input potentially having a different allowance depending on the EU‟s preferential arrangements with non-EU countries). The Rules of Origin requirements can add an extra layer of complexity, which can raise compliance and administrative costs to firms."

The earlier report also says that the EEA is problem for foreign investors:

"not least because the Scottish Government would lose all influence over the laws and regulations to which foreign investors would be bound. In that scenario it would make more sense for foreign investors to locate in a country that exerted real influence over these laws and regulations."

In short, Nicola Sturgeon is arguing for a bad, damaging outcome - which can be proven by simply quoting what she used to say about that outcome.

Sturgeon's report makes it case by looking at projections for Scotland's GDP.

So I did have a good laugh today when I saw this at Common Weal:Don’t worry about “nearly meaningless” GDP figures, say economic experts

As if that wasn't funny enough, click through and find out who those "economic experts" are!https://www.commonspace.scot/articles/12191/don-t-worry-about-nearly-meaningless-gdp-figures-say-economic-experts

This is all very interesting reading but the UK isn't just a single market.It's an (unsustainable) incorporating political union with Brexit.

Scotland retaining membership of the EEA would allow it to be part of the EU Single market plus have other arrangements with 3rd parties (e.g. Lichtenstein is part of the EEA but in Customs Union with non-EU Switzerland)

The rules of origin requirements would actually be neutral for Scotland - it would protect Scotland from rUK firms name-plating in Scotland only and eliminate many issues about goods transshipped via rUK into the rEEA.